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Seremban Engineering Berhad (KLSE:SEB)’s price-to-earnings (or “P/E”) ratio of 15.9x might make it look like a sell right now compared to the Malaysian market, where nearly half of companies have below P/E ratios. A P/E below 13x and even 7x is fairly common. However, we’ll need to dig a little deeper to determine whether there’s a rational basis for an inflated P/E.
Seremban Engineering Berhad has certainly been doing a good job lately as it has been growing earnings at a really fast pace. It appears to be anticipating strong earnings performance to outperform many other companies in the coming period, increasing investors’ willingness to pay for the stock. You’d really hope so, otherwise you’re paying a huge price for no particular reason.
View our latest analysis for Seremban Engineering Berhad
We don’t have analyst forecasts, but you can see how recent trends are setting the company up for the future. free Report on Seremban Engineering Berhad’s Earnings, Revenue and Cash Flow.
How is the development of Seremban Engineering Berhad progressing?
There is an underlying assumption that in order to be considered fair, a company must outperform the market for a P/E ratio like Seremban Engineering Berhad.
Retrospectively, the past year delivered an extraordinary 75% gain to the company’s bottom line. Still, overall EPS is barely up from three years ago, which isn’t ideal. So it appears to us that the company has had mixed results in terms of earnings growth during that time period.
Weighing its recent medium-term earnings trajectory against the broad market’s one-year forecast for an 8.6% expansion suggests it’s less attractive on an annualized basis.
In light of this, it is worrying that Seremban Engineering Berhad’s P/E sits above most other companies. Apparently many investors in the company are indicating more bullish sentiment than in the recent past and are unwilling to give up their stock at any cost. There’s a good chance that current shareholders are setting themselves up for disappointment in the future if the P/E falls to higher levels with recent growth rates.
last word
Generally, we caution against reading too much into the price-to-earnings ratio when settling on investment decisions, although it can tell a lot about what other market participants think about the company.
We have established that Seremban Engineering Berhad is currently trading at a much higher than expected P/E as its recent three-year growth is below broad market forecasts. When we see weak earnings with slower earnings than market growth, we suspect that the stock price is in danger of falling, leading to a lower P/E. Unless conditions improve significantly in the near to medium term, it is very challenging to justify these prices.
You should always think about the risks. Case in point, we’ve seen 3 warning signs for Seremban Engineering Berhad You should be aware of this, and 2 of them should not be ignored.
it’s important Make sure you are looking for the best company, not just the first one that comes to your mind. so take a look at free List of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).
Have feedback on this article? Worried about content? keep in touch directly with us. Alternatively, email editorial-team(at)simplywallst.com.
This Simply Wall St article is general in nature. We only provide commentary based on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to provide financial advice. It is not a recommendation to buy or sell any stock, and does not take into account your objectives, or your financial situation. We aim to bring you long term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall Street has no position in any of the stocks mentioned.
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